Sharp deterioration in business conditions, and slower growth momentum in the finance, insurance and real estate (FIRE) sectors’ job vacancies suggested a softening of office leasing demand. The average Grade A office rent stalled in 3Q 2011. As of August 2011, the average Grade A office rent stood at HK$67.91 per sq ft per month, while that of Central declined 1.5% quarter-on-quarter to HK$111.79 per sq ft per month.

Some of the smaller or more cost-sensitive tenants were forced to relocate after receiving landlords’ expensive rental proposals, and looked for alternative office accommodation either away from Central or for lower-cost options in lower-quality offices in fringe Central.

Looking ahead, a relatively higher rent environment, especially in Central, will result in a steady stream of relocations as tenants seek more cost-effective office accommodation. The overall Grade A office rents are set to slow and undergo a downward correction by 8% over the next 12 months.